Benefits of a Good Employee Referral Program (& How to Build One)

The hiring market is tough—that’s no secret. HR departments and hiring managers are increasingly expected to do more with less, all while dealing with a tight labor market. Finding a way to maximize your efforts to find the best candidates is essential.

This is where employee referral programs can come into play.

These programs encourage employees to refer their peers for applicable open positions at their current employer, and they can be extremely effective in recruiting top talent!

In this blog post, we will discuss the benefits of employee referral programs and provide tips for building an effective program.

What Is an Employee Referral Program?

Referral programs have been used both internally and externally by employers to fill open positions (internal) and gain new business (external). An employee referral program, specifically, is a recruitment strategy that relies on current employees to refer qualified candidates for job openings within the company. These programs encourage employees to recommend individuals they know who possess the required skills and experience for the job.

A recent survey revealed that 90% of companies recruit new employees through employee referral programs, and many find them to be extremely effective.

So we know that employers love to use them, but you may be wondering what other benefits employee referral programs boast for employers and employees. Let’s take a closer look.

Employer Benefits of Employee Referral Programs

Employee referral programs are an increasingly popular recruitment strategy for employers. Here are a couple of reasons why:

  • Improved quality of hires: Referral candidates are often a better fit for the organization and the position they are applying for. They have been recommended by someone who understands the company’s culture and values and can attest to the candidate’s work ethic and skill set.
  • Cost-effective: Employee referral programs are cost-effective since they reduce the cost of hiring through third-party recruiters or job posting sites. A study revealed that, on average, it’s $1,000 less per hire using employee referrals than other hiring sources.
  • Higher retention: Referral candidates are more likely to stay with the company longer than candidates hired through other methods. On average, the retention rate of referral hires is roughly 46%, which is 13% higher than job board hires. What’s more, referred hires tend to stay at companies longer than non-referred hires. Specifically, referred hires stay 70% longer than non-referred employees, with 50% of all referral employees remaining at the company in their position for at least three years.
  • Faster hiring process: Referral candidates are usually hired faster than those from other sources since they have already been pre-screened by the referring employee. They’re an easy way to accelerate the hiring process.

Employee Benefits of Employee Referral Programs

On the flip side, here are some of the potential benefits that employee referral programs can offer for employees:

  • Financial incentives: Many employee referral programs offer a financial reward for successful referrals, which can be a significant benefit for employees who are looking to earn extra income.
  • Improved workplace culture: When employees are allowed to refer their friends or acquaintances for job positions, it can lead to a more positive and collaborative workplace culture. Employees may feel more connected to their colleagues and invested in the company’s success as a whole.
  • Sense of pride and accomplishment: Successfully referring a candidate who is hired can give employees a sense of pride and accomplishment. They may feel that they have contributed to the company’s success in a meaningful way.
  • Increased job security: By referring qualified candidates who are a good fit for the company, employees can help ensure the company’s success and their own job security. This can be a valuable benefit in uncertain economic times.
  • Opportunity to help others: Referring a friend or acquaintance for a job can be a rewarding experience, as employees have the opportunity to help others find employment and improve their own financial stability.

Employee referral programs can be a great mutually beneficial relationship between employer and employee. Now, let’s explore how to create an employee referral program at your organization.

RELATED: 10 Recruitment Strategies to Win the Competition for Talent

Tips to Follow When Building an Employee Referral Program

Building a successful program requires careful planning and execution. Employers must ensure that their program is structured to encourage employee participation and maximizes the chances of finding high-quality candidates.

Next, we’ll explore some key tips for building an effective employee referral program that can help employers reap the benefits of this recruitment strategy:

Create an Employee Referral Program Workplace Policy

An employee referral policy outlines the guidelines and rules for referring candidates. Having a clear and well-defined policy is critical to the success of any employee referral program. It also helps keep the process consistent across the company.

Here are some elements that should be included in an employee referral policy:

  • Eligibility: Define who is eligible to participate in the program. This can include all employees or specific departments.
  • Incentives: Specify the incentives that will be given to employees who refer candidates. This can include cash bonuses, paid time off, or other rewards.
  • Referral process: Clearly define the referral process, including how to submit referrals, the information required for referrals, and the timeline for notification and feedback.
  • Candidate criteria: Establish the criteria for selecting candidates. This can include qualifications, experience, and skillset.

Clearly Define the Role For Which You’re Asking Referrals

Employers need to clearly define the role for which they want to promote through employee referral programs. This is necessary to:

  • Ensure consistency: Clear job descriptions and role definitions help ensure all candidates are assessed using the same criteria. This consistency is essential for a fair and unbiased recruitment process.
  • Attract the right candidates: A well-defined job description can help attract candidates with the necessary skills and experience for the position. This can save time and effort in the recruitment process, as the employer can focus on candidates who are more likely to be a good fit for the role.
  • Manage expectations: Knowing the role can help manage the expectations of both the referring employee and the referred candidate. This can prevent misunderstandings and disappointment if the candidate is not selected for the role—or even if they are.
  • Provide context: Clear job descriptions provide context for the referring employee, helping them to understand what the employer is looking for in a candidate.

Text: Wonder how much time and money recruiting costs? From productivity lost to advertising costs, they might add up.

Promote the Referral Program to Employees

You may have a wonder program, but you need to get the word out! Doing this will increase awareness in participation in the program and, ideally, improve overall recruitment outcomes.

As previously mentioned, a couple things to keep in mind when promoting an employee referral program include:

  • Let employees know exactly where they can refer candidates
  • Outline how employees will get their reward/incentive when the employee is hired. Is it immediately? After 90 days?
  • Keep communication about the program consistent across all work channels
  • Speaking of work channels, use them! Don’t send out a single email and hope it works. Let employees know about the program in all formats: emails, newsletters, company meetings, through managers, and more.

Don’t Ignore Non-Referral Candidates

While employee referral programs are a valuable tool for recruiting top talent, it is important not to ignore non-referral candidates. There are several reasons for this, including:

  • Ensuring diversity: An organization will miss out on a diverse pool of candidates if they lean heavily on referrals. Non-referral candidates will bring a different set of skills, experiences, and perspectives that can add value to the organization.
  • Maximizing talent pool: Ignoring non-referral candidates may limit the size of the talent pool and reduce the likelihood of finding the best candidate for the job. You can find unique qualifications and experiences from non-referral candidates, too.
  • Maintaining fairness: By giving preference to employee referrals, an organization may create a perception of unfairness or favoritism among non-referral candidates. This can damage the organization’s reputation and harm its ability to attract top talent.

It’s important to find the right mix of referrals and non-referrals. Optimizing this balance will get you the best results!

Incentivize Employees Who Refer Candidates

Another important aspect of your employee referral plan is incentivizing employees who refer candidates. It has similar benefits to other parts of the plan, including:

  • Motivating employees: The promise of a reward can be a powerful motivator for employees to put in the extra effort to identify and refer potential candidates.
  • Increasing the number of referrals: Offering incentives can encourage employees to refer more candidates, which can increase the pool of potential candidates for the employer. This can help to fill open positions faster and with better-quality candidates.

Prioritize Keeping Referring Employees in the Loop

Once employees start referring candidates, keep them in the loop! This is an important step, as it:

  • Shows appreciation: Keeping employees informed about the progress of their referrals shows that the employer values their contributions and appreciates their efforts to help recruit new talent.
  • Encourages participation: When employees see that their referrals are being taken seriously, they are more likely to continue to participate in the employee referral program.
  • Maintains trust in the process: By keeping employees in the loop, the employer can build and maintain trust with their employees. If employees feel that their referrals are being ignored or they don’t know the status of them, they may lose trust in the employer and become less motivated to participate in the program.
  • Improves the quality of referrals: By providing feedback to employees on the suitability of their referrals, the employer can help them to improve the quality of their referrals in the future. This can help to ensure that the employee referral program is a more effective tool for recruiting top talent.

What Is an Average Bonus for Employee Referral Programs?

It varies depending on the company and the position being filled. However, most companies offer bonuses ranging from $500 to $5,000 for successful referrals.

One study found that the optimal range for companies to spend on referral rewards per hire is between $3,000 to $5,000, as this range provides the highest return on investment (ROI).

Need Help Finding Candidates?

Employee referral programs are a win-win for both organizations and employees. They offer a cost-effective way to find qualified candidates while motivating employees to refer individuals they know and trust. By following the tips outlined above, organizations can build an effective employee referral program that benefits everyone involved.

At Insight Global, we’re the experts on recruiting and are well-versed in how to weed out the bad apples in your bushel of resumes. We have over 20 years of experience in the field and are happy to help you learn more about how an employee referral program could benefit your business. Reach out to us today to find out how we can work together to bring top talent to your business.

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